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> but rather the US dollar has become more worthless What do you mean by this and how does one follow the other? I genuinely want to know. I'm unfamiliar with

by Yhippa 6y ago

> but rather the US dollar has become more worthless What do you mean by this and how does one follow the other? I genuinely want to know. I'm unfamiliar with this concept.

randomdata 6y ago
Inflation is the term you may be more familiar with. As availability of currency expands and becomes less valuable, the price of things goes up to maintain value parity. In particular, right now money is being printed to ease the effects of COVID-19 issues, which is causing a large spike in prices as a form of inflation. To complicate matters, though, inflation is normally thought of as CPI; a measure of what people are spending on consumable items. Things like stocks, housing, and other assets that are jumping in price are not consumable goods and services. As such we try to avoid using the term inflation for this phenomena, but the principle is the same. Modern monetary policy seeks to try and keep that added money off of "Main Street", so that your groceries and gasoline aren't skyrocketing in price, but ultimately the money has to go somewhere, and that somewhere is "Wall Street".
- milkytron 6y ago
  > Things like stocks, housing, and other assets that are jumping in price are not consumable goods and services. As such we try to avoid using the term inflation for this phenomena, but the principle is the same. I believe the term for this is "asset inflation", which is just a different form of inflation.
  - randomdata 6y ago
    You are quite right, but the use of inflation carries some emotional baggage being associated with CPI, and thus I would suggest that the term "asset inflation" is avoided in general conversation.
jameslk 6y ago
The US dollar is just a type of asset (i.e. of the cash asset class). I'm proposing that it's become less valuable compared to other types of assets such as specific stocks like Apple's, gold, etc. I believe this is due the effects of the Federal Reserve's actions of injecting more US dollars into the economy recently (aka money printing). As more US dollars are created from thin air, other asset classes naturally increase in value, or the US dollar decreases in value, whichever angle you want to look at it from. This is simply called inflation. Often times the Consumer Price Index is referenced as the source of truth on inflation, especially when the Fed makes its decisions on adding/removing money into the economy[0]. But the CPI doesn't track every type of asset such as stocks or gold, since these aren't things the Fed is trying keep the US dollar stable with as part of its dual mandate[1]. Price fluctuations haven't happened evenly across asset classes just because of the way COVID-19 has had effects on various parts of the economy. Not all stocks have increased due to negative effects of COVID-19 on certain types of businesses, not all real estate has climbed due to people moving around during COVID-19, etc. 0. https://en.wikipedia.org/wiki/Core_inflation https://en.wikipedia.org/wiki/Core_inflation 1. https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp https://www.investopedia.com/articles/investing/100715/break...

by Yhippa 6y ago

> but rather the US dollar has become more worthless What do you mean by this and how does one follow the other? I genuinely want to know. I'm unfamiliar with this concept.

randomdata 6y ago

Inflation is the term you may be more familiar with. As availability of currency expands and becomes less valuable, the price of things goes up to maintain value parity. In particular, right now money is being printed to ease the effects of COVID-19 issues, which is causing a large spike in prices as a form of inflation. To complicate matters, though, inflation is normally thought of as CPI; a measure of what people are spending on consumable items. Things like stocks, housing, and other assets that are jumping in price are not consumable goods and services. As such we try to avoid using the term inflation for this phenomena, but the principle is the same. Modern monetary policy seeks to try and keep that added money off of "Main Street", so that your groceries and gasoline aren't skyrocketing in price, but ultimately the money has to go somewhere, and that somewhere is "Wall Street".

milkytron 6y ago
> Things like stocks, housing, and other assets that are jumping in price are not consumable goods and services. As such we try to avoid using the term inflation for this phenomena, but the principle is the same. I believe the term for this is "asset inflation", which is just a different form of inflation.
- randomdata 6y ago
  You are quite right, but the use of inflation carries some emotional baggage being associated with CPI, and thus I would suggest that the term "asset inflation" is avoided in general conversation.

jameslk 6y ago

The US dollar is just a type of asset (i.e. of the cash asset class). I'm proposing that it's become less valuable compared to other types of assets such as specific stocks like Apple's, gold, etc. I believe this is due the effects of the Federal Reserve's actions of injecting more US dollars into the economy recently (aka money printing). As more US dollars are created from thin air, other asset classes naturally increase in value, or the US dollar decreases in value, whichever angle you want to look at it from. This is simply called inflation. Often times the Consumer Price Index is referenced as the source of truth on inflation, especially when the Fed makes its decisions on adding/removing money into the economy[0]. But the CPI doesn't track every type of asset such as stocks or gold, since these aren't things the Fed is trying keep the US dollar stable with as part of its dual mandate[1]. Price fluctuations haven't happened evenly across asset classes just because of the way COVID-19 has had effects on various parts of the economy. Not all stocks have increased due to negative effects of COVID-19 on certain types of businesses, not all real estate has climbed due to people moving around during COVID-19, etc. 0. https://en.wikipedia.org/wiki/Core_inflation https://en.wikipedia.org/wiki/Core_inflation 1. https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp https://www.investopedia.com/articles/investing/100715/break...